The CAPM is commonly used for an introduction of the equity cost in practice to calculate the corporate value, which is composed by the risk-free rate, equity market return and each respective beta. However, there is a fundamental complication between the risk, cost and return for the equity...

While existing asset pricing studies focus on macroeconomic variables to predict stock market risk premium, we find that an aggregate index of corporate activities has substantially greater predictive power both in- and out-of sample, and yields much greater economic gain for a mean-variance...

The article presents a historical review of the literature related to the empirical problem of excessive risk premium. The risk premium (the difference between the return on equities and risk-free rate) observed in financial markets cannot be reconciled with theoretical models of financial...

A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the...

Share prices fluctuate far more than dividends. In contemporary lit- erature, this excess volatility is usually discussed involving the Camp- bell-Shiller present value identity. In our view, it is more appropriate to model future dividends and prices explicitly as random variables. We refer to...

The Equity risk-premium and volatility puzzle - is it possible to have a high equity premium and a low risk-free rate with a plausible risk aversion- have received a great deal of attention but beyond this question, the fundamental issues of that puzzle are the followings: what are the economic...

The Equity risk-premium and volatility puzzles: Is it possible to have a high-equity premium and a low risk-free rate, and a high volatile stock return, have received a great deal of attention but beyond this, the fundamental issues are the following: What are the economic representations that...

This paper employs a life-cycle model of consumption and saving to study risk premia in CEO compensation, and compares them to variation in observed pay levels. The model incorporates the main types of risk to income and savings that executives of public corporations typically face: option- and...

Market integration and currency risk are two main factors that distinguish international investment and financing decisions. Hence, we investigate the impact of currency factor on the dynamics of market integration. We compare integration indices estimated from conditional international asset...

As opposed to the “low beta low risk” convention, we show that low beta stocks are illiquid and exposed to high liquidity risk. After adjusting for liquidity risk, low beta stocks no longer outperform high beta stocks. Although investors who “bet against beta” earn a significant beta...